I. T. A. NO. 10198/LB/DB OF 1991-92, DECIDED ON 20TH APRIL, 1998. VS I. T. A. NO. 10198/LB/DB OF 1991-92, DECIDED ON 20TH APRIL, 1998., 1998 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3702 (1998)

(a) Words and phrases---

----"Income"---Meaning.

Concise Oxford Dictionary ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.22(c) & Second Sched., Cl.(65)---Exemption---Export award--- Assessee claimed exemption of amount received on account of export award- Assessing officer taxed the amount treating the same as taxable income under S.22(c) of the Income Tax Ordinance, 1979---Order was confirmed by the Commissioner of Income Tax (Appeals)--- Validity---Such receipt being of a non-recurring nature was exempt under cl, (65) of the Second Sched. of, Income Tax Ordinance, 1979.

(1981) 129 ITR 603 distinguished.

I.T.A. No. 1039/LB of 1990-91 ref.

Ahmad Nauman Sheikh, I.T.P. for Appellant.

Abdul Rauf, D.R. and Rana Munir Hussain, L.A. for Respondent.

Date of hearing: 1st November, 1997.

ORDER

INAM ELLAHI SHEIKH (ACCOUNTANT MEMBER).---A private limited company/deriving income from manufacture and supply of electricity meters has filed this further appeal against an order, dated 14-12-1991 recorded by the learned C.I.T. (Appeals), Zone-II, Lahore whereby the refusal of the assessing officer to treat export award received as exempt income was confirmed by the first appellate authority.

2. The relevant facts in brief are that the assessee supplied meters to WAPDA under an international tender arrangement and such supplies were treated as export. Such applies were said to have been made in the income year ended 30-6-1988 pertaining to the assessment year 1988-89. The assessee was awarded the export award of Rs.1,000,000 which was instituted by the Government of Pakistan vide a Notification No.3-15/88-P & C, dated 26-6-1988, The assessee was advised by the Export Promotion Bureau that it had been selected for receiving the export award on account of "Highest Engineering Goods Exports" during the year 1987-88, vide a letter, dated 19-2-1989. The assessee accounted for this award as income in the accounts and declared the same as exempt income in the return. The assessing officer confronted the assessee on this issue and thereafter, refused the claim of exemption treating the income as taxable under section 22(c) of the Income Tax Ordinance (hereinafter called the Ordinance). The learned C.I.T. (Appeals) confirmed this treatment.

3. The main issue decided by the learned C.I.T. (Appeals) is the assessee's claim of exemption of such income in this order which has been decided against the assessee and now agitated before us. The main contention of the learned A.R. of the assessee is that this amount of Rs.1000,000 being the export award, is at best the casual income and attracts the exemption under clause (65) of the Second Schedule to the Ordinance. The learned A.R. of the assessee has strongly objected to the application of the provision of section 22(c) of the Ordinance. The other main argument of the learned A.R. of the assessee is that this is in fact no income at all and he has referred to the meaning of the income given in the Concise Oxford Dictionary of Current English reads as follow:

"Income, Periodical receipts from one's business, lands, work, investment, etc.: "

The learned A.R. of the assessee further argued that the exports had been made in the income year pertaining to assessment year 1988-89 and thus, could not be held the income of the year under consideration in any case. The learned A.R. of the assessee has relied on a decision of the Tribunal, dated 31-5-1992 recorded in I.T.A. No.1039/LB/1990-91. Mr. Rana Munir Hussain, the learned legal Adviser and Mr. Abdul Rauf, the Additional Commissioner, the learned D.R. on the other hand, opposed the assessee's appeal with the contention that the provisions of Clause (65) of the Second Schedule to the Ordinance and section 22(c) of the Ordinance were of different nature and stressed that the provision of section 22(c) of the Ordinance was fully applicable in this case. The learned L.A. elaborated that the provisions of Clause (65) of the Second Schedule were applicable where the income could not be taxed as 'income from business or profession' whereas the provisions of section 22(c) were applicable where receipts were connected with the business of the assessee. The learned L. A. also elaborated that the casual income is not usually earned with any effort whereas the assessee in the present case has exported the goods to earn this award. The learned L.A. further argued that the assessee itself had declared the impugned receipts as exempt income in the Second Part of the Return, which showed that this was in fact the income of the assessee. The learned L.A. also distinguished the case reported as (1981) 129 ITR 603 (Supra) since the issue in that case was a gift and not the income as in the present case.

4. The parties have been heard and relevant orders perused. Before considering the arguments at length it would be useful to reproduce the relevant provisions of section 22(c) of the Ordinance and Clause 65 of the Second Schedule to the Ordinance which read as follow:---

"22. Income from business or profession:---The following incomes shall be chargeable under the "Income from business or profession", namely:---

(a)Profits and gains of any business or profession carried on, or deemed to be carried on, by the assessee at any time during the income year;

(b)income derived by any trade, professional and similar association from specific services performed for its members; and

(c)value of any, benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.

Clause (65). Any receipts (not being receipts chargeable under the head "Income from business or profession" or "Capital gains" or by way of addition to the remuneration of an employee) which are of a casual and non recurring nature, if such receipts are less than twenty-five thousand rupees."

It may be mentioned here that the restriction of the quantum of qualifying receipts to less than Rs.25,000 was inserted by Finance Act, 1990 and is, therefore, not relevant to the circumstances of this case.

5. The case of the assessee-appellant is that the impugned receipts of Rs.1,000,000 are covered by the exemption granted in clause (65) of the Second Schedule of the Ordinance. The case of the Revenue, on the other hand, is that the said amount of Rs.1,000,000 has correctly been charged to tax under the provision of section 22(c) of the Ordinance.

6. We have considered the submissions of both the parties and we have also considered the case-law. In the Indian case referred to above the amount in dispute had been obtained by the assessee from a foreign organisation to improve its magazine. In that case the Supreme Court of India allowed exemption and held that the receipt was casual and non-recurring nature. In an order, dated 31-5-1992 recorded in I.T.A. No.1039/LB/90-91 a Division Bench of the Tribunal held that the amount received by an employee from the employer as an incentive reward was exempt under Clause (65) of the Second Schedule to the Ordinance. It is not the case of the Revenue that the receipts in question are of a recurring nature or not casual. The Revenue has taxed it under the provision of section 22(c) of the Ordinance and held the receipts as incidental to the business of the assessee. Hence, the case of the Revenue is that since receipts are chargeable under the head income from business or profession, it is hit by the exception mentioned in the Clause (65) of the Second Schedule. The provision of section 22(c) of the Ordinance has already been reproduced above alongwith the provisions of Clauses (a) and (b) of section 22 of the Ordinance. Clause (c) of the Second section 22 covers such situation where the assessee obtains a benefit or perquisite, which may or may not be convertible into money, which arises from the business. Hence, in our considered view this clause does not cover a cash reward itself. The other possibility could be to treat it as a business income under Clause (a) of section 22. However, in that case the assessing officer could only charge to tax profits gains of any business or profession carried on, or deemed to be carried on during the income year under consideration. There is no dispute over the fact that the export award was given for the exports made during the income year 1987-88 relating to assessment year 1988-89 and not in the year under consideration. Hence, that provision could not hit the assessee in any case in the year under consideration. Clause (b) of section 22 of the Ordinance is not relevant to the facts of this case. Hence, it could be said that the impugned receipts are not chargeable under the head 'income from business or profession. There is no dispute over the contention of the assessee that this receipt is of a non-recurring nature. Hence, in our considered view, exemption has to be allowed to this assessee on this receipt under the provision of Clause 65 of the Second Schedule to the Ordinance. Accordingly, we allow this appeal of the assessee on this issue and we direct that the income in question be treated as exempt.

7. The assessee has also taken a ground to agitate the disallowance of export rebate. However, this issue was not argued before us. In any case this issue has been decided by the first appellate authority in a separate appeal and the issue was set aside for de-novo consideration. Hence, no adjudication on this issue. The appeal of the assessee succeeds to the extent indicated above.

C.M.A./564/Trib. Order accordingly.